In the previous article we had broadly seen how to conceptually classify a mutual fund. One of the questions we asked while classifying a fund was the asset class in which it invests. Does it invest in stocks, bonds, money market instruments or does it diversify across more than one asset class? One of the most popular asset class in which mutual funds invest is stocks/equity.

In this article lets continue from where we left and see the types of equity/stock mutual funds in detail. Its interesting to note that a large proportion (around 48% in 2010) of mutual fund assets are invested in equities. Other asset classes like bonds, money market instruments constitute the rest (around 52% in 2010).

Why do a large proportion of mutual funds invest in stocks?

This is because equities have had a long history of outperforming almost every other asset class by giving the best returns over longer periods of time. There are some exceptions but its a good rule of thumb that investing in stocks is one of the best options for someone looking for long term investments. More »